J.M. Smucker, the producer of jelly, is set to acquire Hostess Brands, the company behind Twinkies, for a sum of $5.6 billion, equivalent to $34.25 per share. Shareholders of Hostess will be provided with $30 in cash and approximately 0.03002 shares of Smucker’s stock for each Hostess share they possess.
Additionally, Smucker will take on Hostess’s debt, amounting to approximately $900 million. The transaction is anticipated to be finalized during Smucker’s fiscal third quarter, which concludes in January.
In the food industry, Smucker’s acquisition is part of a larger trend among major players, as they actively seek opportunities for growth in the wake of declining pandemic-related gains. Campbell’s Soup recently unveiled its purchase of Sovos Bands, the owner of Rao’s pasta sauce, for $2.7 billion. In July, Mars, the owner of M&M’s, acquired Kevin’s Natural Foods, while Unilever acquired Yasso, a frozen yogurt brand, in June.
Hostess’s Transition to Smucker Ownership
Upon the announcement, Hostess shares experienced an 18% increase in premarket trading on Monday, while Smucker’s stock witnessed a decline of 7.5%.
As of the close of trading on Friday, Hostess stock had already surged by 25% this year, resulting in a market valuation of $3.73 billion for the company. However, this boost had been initiated earlier when reported in late August that Hostess was contemplating a sale, following expressions of interest from major food companies such as PepsiCo and Mondelez International, the maker of Oreos.
Hostess faced a drop in demand for its products like Twinkies and Ding Dongs after raising prices in response to escalating commodity costs. This price increase raised concerns among investors and attracted takeover interest from larger competitors. The company is anticipating a decline in its volume for the full year and, as a result, executives have temporarily halted further price hikes.
The acquisition by Smucker marks the conclusion of Hostess’s seven-year run as a standalone, publicly traded entity. In 2016, Hostess made its public debut by merging with a special purpose acquisition company.
Just three years before that milestone, Apollo Global Management and Metropoulos & Co. breathed new life into the company. They revived it after an extended period of Twinkie scarcity by acquiring the assets of the entity formerly recognized as Interstate Bakeries.
Conclusion
J.M. Smucker’s acquisition of Hostess Brands for $5.6 billion signifies a significant development in the food industry’s pursuit of growth amid pandemic challenges. Hostess, known for Twinkies, faced demand fluctuations due to price increases.
The transaction concludes Hostess’s seven-year public journey, marked by a revival by Apollo Global Management and Metropoulos & Co. It reflects a broader trend of consolidation in the sector, as established players seek strategic opportunities for expansion.
